LOS ANGELES (March 10) – Affordable home prices, tax credits for home buyers, historically low interest rates, and a large number of distressed properties prompted many first-time home buyers to enter the market in 2009, according to the CALIFORNIA ASSOCIATION OF REALTORS®’ (C.A.R.) 2009-2010 “State of the California Housing Market” report released today.

The percent of first-time buyers increased dramatically in 2009, from 35.9 percent in 2008 to 47 percent in 2009, according to the report. The share of first-time buyers exceeded the long-run average of 38.6 percent and was the highest since 1995, when more than half of all buyers were first timers.

“It is clear that the federal tax credit for home buyers worked well in 2009 and is continuing to drive home sales,” said C.A.R. President Steve Goddard. “The home buyers’ tax credit is arguably the most successful strategy employed by the government’s efforts to stimulate the economy.”

According to a survey conducted by C.A.R. on the effectiveness of the federal tax credit for home buyers, nearly 40 percent said they would not have purchased a home if the federal tax credit was not offered. On the same note, nearly 70 percent of these buyers said the tax credit was either “very important” or “most important” in their decision to buy a home. The large number of distressed properties led to more than half of all first-time buyers purchasing an REO/foreclosure or short sale property.

Statewide, REO/foreclosures and short sales accounted for almost half of all annual sales in 2009, an increase from 35.6 percent in 2008. The median price of distressed properties declined nearly one quarter to $250,000 in 2009 compared with $330,000 in 2008. Meanwhile, the median price of non-distressed properties decreased only 10.4 percent to $485,000 compared with $541,000 in 2008.

Many sellers sold their homes with a loss in 2009, and those who experienced a net cash loss increased for the fifth consecutive year. With one-third of sellers experiencing a net cash loss in 2009, it was the highest level on record since C.A.R. started tracking net cash losses in 1989, and was more than triple the long-run average of 9.3 percent. Following two consecutive years of significant declines in prices, the median net cash from home sales declined 50 percent last year to $50,000 from $100,000 in 2008.

Although sellers experienced a steeper net cash loss, lower home prices across the state sent affordability for first-time buyers to record-high levels in 2009. C.A.R.’s First-Time Buyer Housing Affordability Index (FTB-HAI) rose to 64 percent in the third quarter of 2009. The FTB-HAI measures the percentage of households that can afford to purchase an entry-level home in California and also reports first-time buyer indexes for regions and select counties within the state.

Affordable home prices also enabled first-time buyers to purchase larger homes. The average size of a first-time buyer’s house increased to 1,560 square feet in 2009 compared with 1,300 square feet in 2005. Nearly 80 percent of first-time buyers purchased a single-family home, a slight increase from 78.5 in 2008, but a significant increase from 2005 when only 61 percent of first-time buyers purchased single-family homes.

Lower home prices not only encouraged first-time buyers to purchase entry-level homes, but also lured investors. More than 70 percent of properties purchased by investors were either short sales or REO/foreclosures. The typical investment property was 1,367 square feet and had a median price of $232,750.

California’s median home price hit bottom in February 2009 at $245,170. Since then, the median home price has increased steadily in month-to-month comparisons, but remained below 2008 levels throughout 2009. The annual median price is projected to increase to $280,000 in 2010 from $271,000 in 2009.

Homes priced $500,000 or less dominated the sales mix throughout 2008 and early 2009, but peaked at 85 percent in January 2009. Meanwhile, the market share of homes sold for more than $500,000 increased from 15 percent in January 2009 to 25 percent in July 2009, holding steady around that figure for the remainder of last year.

Sales of high-end homes started picking up in late 2009, with the number of closings for homes priced $500,000 or higher rising 3 percent, and sales of homes priced $1 million or more experiencing their first year-to-year increase since July 2007. Statewide, annual sales of existing homes are projected to reach 527,500 units in 2010, a 2.7 percent decline compared with 2009’s annual rate of 540,000 units.

As conventional loans became more difficult to obtain, the percentage of FHA-insured loans as a first mortgage increased significantly in 2009. The percentage of home buyers utilizing an FHA-insured loan increased to 32 percent in 2009, compared with 18.9 percent in 2008, partially a result of the agency increasing its loan limit from $362,790 to $729,750. FHA loans typically require lower down payments and have less rigid credit-qualifying guidelines than conventional loans. The median down payment for FHA-insured loans was $9,888 compared with $92,000 for conventional purchase loans.

“Although the huge increase in the use of FHA-insured loans is of concern, the housing market will continue to stabilize as home prices slowly recover and discretionary sellers return to the market in 2010,” said C.A.R. Chief Economist Leslie Appleton-Young.

Of all U.S. mortgage holders, about one quarter, or 11.3 million households, is underwater, meaning they owe more than their homes are worth. In California, the percentage is even greater—35 percent.

According to First American CoreLogic, the tipping point appears to come when a home owner has a negative equity of 25 percent or more. At that point, many owners choose to cut their losses and voluntarily walk away from their homes. To prevent this result and to avoid a costly and time-consuming foreclosure, banks typically encourage owners to market their property as a short sale.

So, how does San Francisco and the northern peninsula stack up against the rest of the country, and the State as a whole? These areas are doing much better. The percentage of home owners underwater in the San Francisco-San Mateo-Redwood City area is only 10.4 percent. And the percentage of home owners underwater by 25 percent or more is only 2.6 percent.

Real estate sales in San Francisco and the northern peninsula may be lagging previous years but real estate values have remained strong through one of the worst economic downturns since the Great Depression—a fact of which homeowners and prospective buyers should be reminded from time to time.

But fear not! We’re coming back to life, just bear with us. (Yes, this post was prompted by a couple Tweets by @SF Schtuff yesterday.)

Our Site for Pocket Listings (a.k.a “Off Market” or “Not on MLS”) properties is coming soon, and already causing quite a stir, a lot of buzz, and we’d even go so far as prompting a bit of fear in some people’s eyes. Bottom line, it’s going to be awesome for real estate agents, and public alike (once we work through the launch bugs ;-) .) There are several ways to be kept in the loop: go to PocketListings.net and enter your email; follow us on Twitter; or join our Page on Facebook.